China's Gold Reserves

Global Watch - The Gold Forecaster (04/27/2009)
"I have reported in our newsletter that if China was to buy gold for its reserves, it would do it through purchasing local production (around 240 to 270 tons at the moment], which means that for the last six years they have been buying 80 tons a year.

This buying did not appear in the 'open' market or it would have been quickly picked up. Because it was bought locally, the only impact on the market was an unseen drop in supply.

By publicizing this information one has to ask, are they going to buy local supply in larger quantities? Will they take all the local production? If so this will mean a drop in supplies to the open market of a substantial amount. This will be extremely gold positive!

It will also mean that not only is Russia buying around 4 tons a month for reserves, but China is effectively buying over 6-1/2 tons of gold a month for reserves. Now add to that that the Central Bank Gold Agreement signatories are selling around 1 ton of gold a month, with one signatory buying gold now, then it shows that Central Banks of importance are favoring gold far more than before. This does reflect (as the Bundesbank President said) that 'gold is a useful counter to the swings in the $.'

This will have a broader positive impact on gold investors, institutional and private. It gives great support to gold and direction.

Certainly if the IMF is to sell gold (not a foregone conclusion) at an auction as they did in the past, then I would expect a central bank like Russia or China to be a buyer, at market prices.

The implications for gold returning to a monetary role (reserve asset in support of currencies) are tremendous and gold price positive.

If it has such a role in the future, then the possibility of governments taking over the gold market rears its ugly head."

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